Taxpayers need warm glows too

Charles Sonnibank, D.D. by deed dated October 1635, bequeathed a reserve rent, out of land at Broome in the Parish of Hopesay, of 13 pounds, 6 shillings, 8 pence to be paid quarterly at the Rectory to Ten Poor Widows of Ludlow, the Rector to retain 6 shillings 8 pence for his care in receiving it.

Education for the poor, and support for the elderly, have been publicly provided for centuries. Historically churches raised much of the funding for these activities; today governments do.

When it comes to raising revenue, governments have one major advantage over churches: they have greater access to the use of force. As Paul Krugman (and others?) have said, a government is basically just an insurance company with an army.

Churches, however, have a some distinct advantages in the revenue raising department. First, they can promise rewards in the afterlife in exchange for gifts now. The advantage of this as a business model is that heavenly rewards cost nothing for the church to provide. No one can ever know for sure whether or not religious authorities have delivered upon their promises. Moreover, eternal damnation is an uncomfortable prospect, so even if one doubts the existence of the afterlife, it seems like a good idea to hedge one's bets.

A second advantage that churches have in raising revenue is that they are much better at providing people with warm glows, making people feel good about giving. Christian churches generally preach that charity is a virtue.

And now abideth faith, hope, charity, these three; but the greatest of these is charity. 1 Corinthians 13:13, King James Bible.

As well, they sometimes provide public recognition for their donors. The picture above, and the one below, were taken from a centuries old "donor wall" in St Laurence Church, Ludlow. It would feel good to see ones name there, in a beautiful chapel, joining other great donors from over the centuries.

Ludlow, July 10th, 1766

The Reverend Mr Richard Morgan, Rector of Clungunford, left to the Rector, Lecturer and Reader of this Parish for the Time being, the Sum of £140 pounds in Trust to pay for the Schooling of poor Children

There is nothing to stop governments from making people feel good about paying taxes. When the US government increased income taxes to finance World War II spending, they hired Walt Disney to make people feel fired up about paying taxes to sink the Axis (video here). In a recent trip to Boston Spa I was struck by the recognition awarded to people who pay for the garbage cans on the town's streets. On the left I've included a picture of a garage can provided by one Sheila Cooper.

It seems like a no-brainer: individual tax payers contribute thousands, or tens of thousands, of dollars to government revenues each year. It would cost next to nothing to say "thank you", but it might make people feel good.

Or it might not. I've been told that Londoners received a statement with their Council Tax payments something along the lines of "Council has donated £200 to the London Olympics on your behalf." If you're someone who figures that the Olympics are a waste of money, being reminded that they're funded through your tax dollars is likely to give you a warm glow of fiery fury.

But it's a problem: people want health care, education, armies, and support for the elderly. Christian churches have never been able to raise more than a tithe, or 1/10th, of people's incomes, even when they were the major providers of social security. Taxes are the only feasible means of paying for the public services required with current levels of life expectancy, health care technology and educational needs. So how can people feel good - or at least better - about paying them?

In this paper, participants claimed that the added incentive of knowing that some money would go to a good cause influenced them to work harder. The perception of “fairness” may reflect the “warm glow”.

A paper I can't quite track down right now showed that people were happier paying taxes when they received a refund. I know this goes against most economists argument about how to structure your taxes but compliance goes up when a refund is issued and when they get a refund they answered more positively about paying taxes.

Pre-populated tax forms also seem to make people happier about the process of paying tax which by extension makes them happier about paying taxes overall.

Of course, eliminating spending scandals would have a very positive affect on the warm glow.

I notice on CRA notice of assessments they start with "Thank you for filing your income tax return." Why not extend that to saying thank you for paying your taxes for 2011. Your taxes have helped pay for fund public services and infrastructure and well as provide programs to help low income Canadians."

You could even personalize it for the region though in Victoria area I don't think you would want put that the tax dollars when to help pay for our new sewage treatment plant. That is not at all popular!

Lindsay - thanks for these comments. I'm giving a talk at Queen's later in the month on taxes as social policy, http://www.queensu.ca/sps/events/conferencesandworkshops/qiisp/201213.html, and that idea that refunds make people happier about paying taxes is an interesting explanation of the trend towards using tax policy as social policy. I'll see if I can track down the reference.

Hi Frances:
When I cover government in my economic history class, the definition of government I like to use is "Government is an institution that differs from others because of it has a legal monopoly on coercive force"

Livio - I was wondering about that, but then thought of, e.g. the the Papal Guard, which is a religious militia. Is the Papal Guard the only example of a church having access to the use of force, or does it prove that the Vatican is, in fact, a governmental organization, or...?

Also there are the "religious police" or Mutaween in some Islamic nations.

I think this is right. Whoever pays the highest amount of tax in any given year should be awarded a gold medal. Silver for second, bronze for coming in third. Maybe lifetime achievement (or last 10 years) awards? Cheating is allowed and even encouraged in this sport: you can pay more tax than you owe. We should applaud people who earn high incomes and pay high taxes on those incomes.

The Vatican is a state as well as a religious institution. However, my impression was the Swiss Guard these days is more of a security force for the Vatican and not an effective policy instrument as in the case for standing armies. Not sure about Islamic nations.

I think the biggest thing is to make it invisible. Reduce the complexity so that a tax return is just filing for credits not included on t-slips (charitable donations etc). Require that HST and GST be included in posted prices, so it's just a note at the bottom of the receipt instead of jacking up the price at the till.

And then change the conversation about taxes. Right now we talk about "lowering taxes" like it's disconnected from anything else. The government can just decide to charge less for its services. Instead talk about "we're going to cut health funding in order to reduce taxes." Connecting service and payment lets the public conversation around taxes be about what we actually value instead of just about our desire to pay less for things.

As for spending scandals, I'm not sure what can be done. Governments are massive bureaucracies, and with that comes inefficiencies and thousands of people trying to stretch the rules to maximize their own advantage. I've spent my career so far in medium sized companies (500-1200 employees), and even at that scale there's inefficiency and misspending...with hundreds of thousands of employees it's basically impossible to not have a few things slip through.

What's interesting to me in this post is your last paragraph. Churches can "only" tithe at a 10% rate. The implicit "but" here is that it requires more than 10% of the entire population's income to fund the social safety net that is assumed to be necessary.

10% of Canada's GDP is $180 billion. That's about $5,200 for every man, woman, and child in the country. (Don't ding me on this, I was just going by Google results for 2011 GDP and population.) Obviously, the "rich" and "middle class" don't really need a $5000 stipend, so it works out to a substantially larger value for the true poor. I don't see this as being a particularly bad deal for the poor.

But say that to an etatist leftist, and they call you a heartless ghoul. It really does come down to a quasi-religious concept of right and wrong.

Churches current are filling too many gaps in the social welfare system with programs such as out-of-the-cold etc. The church that I support has very significant programs because we are lucky enough to have a parking lot that brings in revenue. Governments welcome church programs but it raises possible issues of equity of access to welfare services. The real question is why public support for general social welfare programs and public support for ethical perceptions of equity of access to basic services.
Directly to your post, I feel good about my real financial and other support for the church because I know what it accomplishes. I don't feel as much support for my tax burden because I know that too much of it is targeted to political goals rather than towards equitable support for Canadians.

Frances: Is the Papal Guard the only example of a church having access to the use of force, or does it prove that the Vatican is, in fact, a governmental organization, or...?
The Papal Guard's jurisdiction is limited to Vatican City and their embassies, where the church and the government are one and the same. When traveling elsewhere, they act as a private bodyguards in much the same way the US secret service continues to guard the president when he travels, despite lacking jurisdiction.

Historically, the Templars are the only example I can think of where there religious institutions had the capacity to use force without also being in control of the government. And competing with governments in this capacity is a big part of why they were eventually disbanded when the temporal governments of Europe were no longer willing to put up with the competition.

Also there are the "religious police" or Mutaween in some Islamic nations.
As far as I know, religious police exist only in nations where there's no separation between religion and government, and are still agents of the government.

Except that you might see THIS kind of cheating: http://www.usatoday.com/sports/olympics/london/badminton/story/2012-08-01/London-Olympics-badminton-scandal/56668034/1. Oh geeze, I lost again, oh well!

Nick: "We should applaud people who earn high incomes and pay high taxes on those incomes."

Aren't they already awarded higher incomes (even after paying higher taxes, don't they still have more spending money than someone with lower income)? With that they can buy better cars, shirts, houses, plane seats, they can even commission some gold rocks to put around their necks. I always thought having higher income was the reward. Giving rewards for having rewards.. I'm sorry, I've confused myself.

One of the many interesting arguments that James Macdonald makes in his book A Free Nation Deep in Debt is that historically taxes, particularly large, lump-sum taxes, often had a voluntary, feel-good character. A wealthy Roman citizen might fund public baths in return for a commemorative plaque and statue, for example, much as a modern plutocrat might fund a theatre or hospital wing.

Other ancient taxes had the character of venture capital; a tax to fund a war might be nominally structured as a loan, with all parties understanding that the donor/lender expected a share of plunder in the event of victory and that in event of defeat, default was certain.

I hope I have not distorted Macdonald's book too much; his main concern is to establish a historical link between the viability of public debt and democracy.

Neil: "As for spending scandals, I'm not sure what can be done. Governments are massive bureaucracies, and with that comes inefficiencies and thousands of people trying to stretch the rules to maximize their own advantage."

I'm not so pesimistic, if only because I've knoe of at least one equally large organizations that doesn't have those problems when they get the culture right. I was thinking of the recent Bev Oda orange juice scandal and was reminded of a former colleague's description of working with Walmart. Their senior officers flew coach, stayed two to a room at the Holiday Inn, and paid for their own coffee (and made a point of not letting my colleague buy it for them). Their head office was furnished with factory seconds, samples and unsold merchandise. No doubt Walmart has issues with people playing fast and loose, but at the senior level, there is a culture that doesn't tolerate the sort of petty nonsense that drives voters (and shareholders) nuts when politicans (or CEOs) do it. I think government COULD get the culture right in that respect.

Neil: " think the biggest thing is to make it invisible."

Well, certainly, making taxes invisible is one way to make higher taxes more palatable. On the other hand, there's something about that that bothers me, it's sort of undemocratic (that isn't the right word, but let's go with it). It seems to me that if voters are to make informed (and good) decisions about how many public goods/services they want to consume, they should see the price of those goods and services. The "hide the tax" argument has a paternalistic flavour (and, to be clear, I'm not suggesting that you're saying this) that suggests that voters can't be trusted to choose the "right" mix of taxes and spending.

The only pure religious/state police force I can recall are the Wicked Witch of the West's flying monkeys, but that was history's only example of a wiccan state.

I am with Ryan in that I think way too many people are Grateful to our Masters. Most people have no idea what taxes get spent on; what sways their views most is whether or not "their people" are in power. If Harper blows a billion on something, lefties scream; when Chretien did it, they were silent, and likewise for righties.

If I expect (hope for) gratitude from someone I am regularly involved with, it is not only because of the basic courtesy but because it supports and deepens a mutual relationship and a desire to benefit each other in future exchanges. If you are facing jail time for not giving me money, my desire for gratitude is inherently insincere, and your gratitude is irrelevant. So is your resentment. So how is the cultivation of gratitude anything other than manipulative and deceptive?

KV: earning more income and paying more taxes creates a positive externality. We want to encourage people to increase the amount of anything they do that creates a positive externality, because otherwise they will do it less than is optimal.

Well, strictly speaking, what I think Nick was suggesting was giving gold metals for paying more taxes, not having more income. Although in a progressive tax system, those will be correlated, so long as there are clever tax planners, that correlation isn't going to be perfect (Mitt Romney anyone?). Nick's suggestion is, I think, to essentially make paying gobs of taxes an exercise of public virtue to be praised and awarded. And who know's, I could even see certain wealthy plutocrats/philanthropists falling over themselves to win that prize (George Soros? Bill Gates? Warrent Buffet? Metals are cheap, if they had even a modest impact on discouraging tax planning, it would be a clever way of hiking tax revenue. Hell, if this were the UK, we could hand-out knighthoods to anyone who paid more than X million quid in their lifetime.

Plus, a public display of some Gazillionaire having paid a ton in taxes, might go some way to discouraging the "well everyone else does it, so why not me" rationalization for cheating on your taxes.

Bob: I agree that gold medals for paying high taxes would discourage "tax planning" (paying less tax for the same income). But even if there were a perfect correlation between taxes and income, I would still want to give gold medals. Earning more income and paying more taxes (same thing given the assumption of a perfect correlation) creates a positive externality. Just as there is too much of activities that cause negative externalities, and we want to discourage them, there is too little of those activities that create positive externalities, and we want to encourage them.

Ryan: "The implicit "but" here is that it requires more than 10% of the entire population's income to fund the social safety net that is assumed to be necessary."

Health care spending alone is well over 10% of GDP (both public and private). Even in the US, which people might think of as having a private health care system, around 8 or 9% of GDP goes to *publicly funded* health care.

Let's put it this way: 10% was barely enough to fund the required social safety net back when life expectancy was considerably shorter than it is now, and health care and education were far cheaper to provide - basically because doctors couldn't do much to improve people's health. Also remember that as economies get richer, the relative price of services such as health care and education increases.

$5,200 per person might sound a lot, until you start stacking it up against $50,000or $100,000 to provide a year of long-term care, $100,000 or $500,000 cancer treatments, $20,000 per year as subsistence costs of living for an elderly person with no other source of income, etc...

Jdiconsult: "Directly to your post, I feel good about my real financial and other support for the church because I know what it accomplishes. I don't feel as much support for my tax burden because I know that too much of it is targeted to political goals rather than towards equitable support for Canadians."

It really depends upon the government and the church, doesn't it? There are some churches that I feel really good about supporting - ones that do amazing front line work in the downtown East Side of Vancouver, for example. There are others that I feel much less good about supporting - ones that advocate against access to birth control, for example.

Bob,Neil - tax invisibility/visibility is a difficult issue. I tend to figure that good taxes should be invisible and bad taxes should be visible, but then who decides which is a good and which is a bad tax?

Shangwen: "So how is the cultivation of gratitude anything other than manipulative and deceptive?"

I think this gets back to some of the conversations in one of Stephen's recent posts about behavioural economics - can one make people better off by manipulating them? Intelligent people can disagree on this point.

Mind you the distinction between government and religious is a nebulous one. Go back to Livio's definition: "Government is an institution that differs from others because of it has a legal monopoly on coercive force". I don't think what's relevant is that the government has a legal monopolgy on the use of coercive force, after all, it can only impose a legal monopoly if it already has a monopoly on the use of force. Rather, what makes a "government" unique is that is perceived as having a legitimate authority to use coercive force (whereas bandits, pirates, rebels aren't).

But, there's no inherent reason why a religious institution (or any other institution) couldn't be perceived as having a legitimate authority to use coercive force (including torture, imprisonment, banishment, etc but, not, curiously, death). Indeed, what pops to mind are the Medieval Inquisitions (not to be confused with the Spanish Inquisition) established by the Catholic Church under cannon law to fight against perceived religious heresies. Now there's a non-governmental institution, performing a non-governmental role, with a perceived legitimate authority to use coercive force.

The NHS costs the UK a little over 8% of GDP. I don't know the figures for private healthcare, but I'm sure they're very low. Of course, that might be largely due to the NHS being much more efficient than the US system or perhaps we have very low standards of what constitutes good healthcare here.

Would 10% of GDP be enough to deal with non-insurance government welfare i.e care for invalids, the unemployed and catastrophic medicine? I have no idea and to a large extent this question depends on how one defines "care" e.g. 10% of GDP would presumably be enough to provide welfare such that no-one had any less than a 19th century standard of living, but most of us would say that that is not enough.

Frances, you misunderstand me. I do not claim that $5,200 per person per year is enough to account for the full value of the present safety net. Rather, I claim that $5,200 is a lot of money to me, but to leftist etatists it is a pittance.

Both of these beliefs are value judgments. What is interesting to me is the fact that many leftists do not seem to realize that many people in the world consider $5,200 to be a legitimately good deal, no matter what it buys.

Let's be perfectly honest about this: No amount of money is sufficient to end all human suffering. Resources are scarse. Therefore, no matter what percentage of GDP we happen to be talking about, it will always fall far short of what human beings really need.

Therefore, at any level, it represents a value judgment. You make 10% sound like a pittance. I'm simply telling you that this is an ethical judgment call, not an economic analysis. And I'm going on the record as saying 10% of GDP is a good deal for the poor, even if it isn't enough to solve all of their problems. After all, I'm middle class, and 10% of GDP won't solve all my problems, either.

But where these value judgments used to be made in private religious institutions, they are now made at the ballot box. I call that a bad thing. Ethics shouldn't be political, they should be private. They used to be. That is part of why I say that etatism is a religion.

But people can sell their shares in Wall-Mart or stop shopping there in an instant. Contrariwise, voting against a politician doesn't mean that they stop making decisions about your life, and you only even get to do that once in a while. Norman Barry would point to emigration, but without a lot of money it's hard to do that and it can't be done swiftly.

So large bureaucracies are not always inefficient, but large basically unaccountable bureaucracies will be.

W. Peden: "Would 10% of GDP be enough to deal with non-insurance government welfare i.e care for invalids, the unemployed and catastrophic medicine?"

I wouldn't call payment of catastropic medical needs 'non-insurance', but that's a side issue. In answer to your question - it depends what counts as invalids/unemployed/catastrophic medical needs, what level of public support is considered to be necessary/adequate, who qualifies for benefits, and how many older folks you want to cover. Don't forget education, too, which was historically provided by churches.

I agree on competition, but competition in government bureaucracy is awkward, both for the reasons I mentioned and because a government has a serious power asymmetry with any competitors (e.g. it can ban postal competition, institute capital controls and other restrictions on freedom of movement, and so on). As Nigel Rees put it, "How come there's only one Monopolies Commission?"

Re hidden taxes, I recall the earlier post on that last year. It is interesting that hidden taxes can be discussed intelligently as good public policy, but would we say the same thing about hidden or secret government spending? After all, the point of taxing is to spend the money again. Should we argue that controversial spending--corporate welfare, Olympic security, bonuses to civil service execs, ineffective social programs--should be kept secret to guarantee their support? Are there public services that are presumably so beneficial yet so intuitively dubious to the electorate, that their full cost should hidden or misrepresented? To some extent, this is already the case. There can be huge social distances between the activity which generates the tax revenue (earning wages, buying groceries, getting a driver's licence so you can get to work) and the activities on which they are spent.

Cultivating gratitude sounds like hard work, indeed it sounds impossible. Why not just cultivate greater indifference, or greater illusions of "publicness"? Having the CEO of Bombardier send every Albertan an annual thank-you card sounds less likely to succeed than more rhetoric about "national champions".

The history of charity is fascinating to anyone interested in how societies, legal systems, and governments evolve. In the English common law system, which we have inherited, charitable trusts could only exist because the state was prepared to step in and enforce them. (The courts don't allow non-charitable trusts in perpetuity.) Charitable trustees are particularly susceptible to temptation to misuse the funds. (1) The person who set up the trust can't do anything if the trustees start misbehaving: legally he or she has no further claim on the property and anyway is probably long since dead. (2) Nor can the beneficiaries complain, simply because there are no named beneficiaries in a charitable purpose trust - only generic "Ten Poor Widows" or "poor Children".

Historically, the "honour of the Crown" requires the state to expend its resources to defend the property of orphans, the mentally incompetent, and charities. Nice troika. This Crown prerogative is institutionalized in Ontario in the Office of the Public Guardian and Trustee.

Frances, you are using the term "Warm Glows" in a way that dismisses social bonds or social exchange.

I remember when I was taking an anthropology class, and the professor described how primitive societies generally do not exhibit market exchange but social exchange. He gave an example of present giving. You would feel embarrassed if someone gave you $1000 ring for your birthday, and you gave them a $5 coupon. On the other hand, if you go to a used car dealer, with whom you have no social connection, then you would like to walk away with the car for $1 if you could, and the car dealer would like to try to sell you the car for $100,000 if he could. That is why used car dealers are slimy. Even primitive cultures would engage in price gouging when transacting with strangers that they did not expect to transact with again. But those types of transactions were much rarer then they are now -- but still they do not form the majority of transactions even in modern society. Customers have ongoing relationships with firms, and employees do as well.

We want exchanges to be fair in some abstract sense independent of present need. This is what allows both society and economy to "work". When economists hear their students complain of "price gouging" and they try to draw some diagrams saying that no, charging $100 for bottled water in case of an earthquake is optimal in some sense, they are denying the humanity of their students and are also not taking seriously the role of prices in coordinating production across multiple periods.

In an economy with many periods, in the absence of complete markets and without perfect information or ability to create perfect contracts, things like trust and relationships between vendors are important. Having prices be fair is still important, and social exchange is still important.

Churches have historically provided significant services to their members which were "sold" for a donation as part of a social exchange. Churches owned substantial holdings of land, had access to large amounts of labor, and with these resources they supplied agricultural products, educational services, housing services, insurance services (alms to the poor or elderly in a community paid by those who were better off) and religious services (e.g. weddings, baptisms, funerals, etc.).

It is not at all the same thing as offering a medal to someone who pays the most in taxes. The appropriate model here is of a mutual aid society that pools resources and sells them its members.

What's interesting to me in this post is your last paragraph. Churches can "only" tithe at a 10% rate. The implicit "but" here is that it requires more than 10% of the entire population's income to fund the social safety net that is assumed to be necessary.

There is a loose concept here of what is a "tithe". In England and continental Europe, a Tithe was paid by landowners to the established, state church (e.g. Church of England), normally out of the agricultural harvest. Hence tithe barns, which held the parish tithe for sale after it had been given to the rector/vicar. Payment of a tithe, ten percent of income, was mandatory at law and the state used force to get people to pay it. It was not "tax-like", it was a tax, period. From this the church paid both its rector and for other statutory duties like the poor house and orphanage.

The Church of England was in effect a contracted service provider, in the modern sense.

Dissenting churches, e.g. the Presbyterians or Methodists in England, had to pay for their clergy and all their expenses themselves. Tithes, as a legal duty, went to the Church of England.

This system was abolished in 1870 after Roman Catholicism was legalized in the UK and dissenting churches grew in number. A survey in the 1850's indicated less than half the population of England had any tie to the Church of England, let alone regularly attended it. People resented paying for a church they didn't believe in while they in effect had to pay their tithe and their church expenses. So tithes were abolished.

In mainland Europe, tithes were abolished in the 1800's, starting with the French Revolution. They survive in some countries as Church Taxes. France still pays the salaries of Catholic and Reformed clergy in Alsace-Lorraine because the Concordat of 1805 still exists there. In Germany there are church taxes. But the main expenses of social services have long been transferred to the state.

rsj - I used the term "warm glow" because there is a huge economics literature on "warm glow" giving. I agree that there are lots of different types of social motivations for giving, e.g. the warm glow of respect and social status, the warm glow of feeling virtuous, diffuse (or not so diffuse) reciprocity or gift exchanges. Some of these types of "warm glows" may be more easily extended to government/tax payer relations than others.

Determinant - I wondered when you were going to wade in. Interestingly, one of these places I stayed while in England was a former tithe farm, that had been bought from the local parish by the present owners. Thanks for the fact check.

If i recall correctly Germany does (or until recently did) collect tithes from parishiners on behalf of the various churches as part of their tax system. I seem to recall their being a canadian tax case which considered whether this was a tax for the purpose of claiming a foreign tax credit (I think the judge concluded it was).

Moreover, it isn't clear that "hiding" taxes automatically makes people less adverse to paying taxes. After all, people may wrongly conclude that they're paying significantly more tax than they really are. I seem to recall there being surveys from the US where people routinely overstate the tax rate that they actually pay, in part, I'd suggest, because for most of them their taxes are deducted at source.

And you can think of all sorts of reasons why that might be the case: (1) confusion between marginal and average tax rates (you only see your average tax rate if you do your own taxes), (2) or a delinkage between taxes and credits (if my employer witholds $5,000, and I get a $5,000 earned income tax credit, I might think that I paid $5,000 in taxes, and received an earned income tax credit, rather than having not paid any taxes (or more generally, in any scenario where you pay taxes during the year and them receive a refund - you might have a reasonable basis for thinking your taxes are higher than they are.

Determinant - I wondered when you were going to wade in. Interestingly, one of these places I stayed while in England was a former tithe farm, that had been bought from the local parish by the present owners. Thanks for the fact check.

Am I that predictable? ;)

Speaking from the other side, I am an Elder in my local United Church of Canada congregation. Under the Manual (Canon Law) Elders are supposed to have Districts and visit church members in those districts. We also, by another section of the Manual, are to attend to the needs of the poor and sick in our communities. That particular section of the Manual has some wonderful turns of phrase and I don't think it has been revised since 1928 when the Manual was written.

My church maintains a Benevolent Fund, one of purposes of which is to pay for out-of-town medical trips for members who can't drive. We don't have intercity bus service in this town.

The Chinese had a much better system. Descended from the Celestial Bureaucracy, each town or city had a City god, who was often a deified city official who had recently died (just reflect on that and your own mayor and city council for a quiet moment...). The City God collected taxes and distributed charity. Hence, any taxes, fees, etc collected were simply part of the Mandate of Heaven, and all was harmonious since, of course, there was no human agency whatsoever. In a sense, payment of tax was both mandatory and voluntary.

A great uncle of mine tried to secularized a Guangzhou City God Temple in the 30s, as part of a "modernization" effort with vague overtones of Christian Socialism. After the local fortune-tellers guild tried to block him, he won out. Surprisingly, the temple's wealth was then absorbed into the civic bureaucracy as a "public good". Who would have thought?

Medals or praise might be a good idea to avoid tax avoidance, but it is certainly not the way to argue for the existence of taxes in general. Nothing beats self interest.

However, thanking/praising people for complying with the law seem a bit strange. Should everyone who hasn’t beaten anyone during the past year also get thanks – “to the best of our knowledge, you haven’t assaulted anyone during the past year – THANK YOU”.

How come every time you see an economist talking about using praise as a motivator, you immediately know that the punch line will be that we should thank the rich for one or another reason?

Didn’t even Adam Smith make fun of this urge to put the rich on the pedestal?

If this post were about free trade, you would not talk about praising workers. You would talk about a bigger total pie and a move towards the utopian state of the Arrow-Debreu model. The same arguments works fine for taxes. Include human capital in your notion of capital (it is a tragedy that economist still don’t do this by default), and pretty much all taxes go into investments. China is not going to get richer despite their massive investments in education, but because of it. The remaining part is largely used to fix additional market imperfections.

nemi: suppose I were personally indifferent between doing A and B, and both A and B would be perfectly legal things for me to do, but if I did A it would be better for all other people than if I did B. Wouldn't you want to ask me please to do A? Maybe say "If you did A, it would be really nice of you". Maybe give me a pat on the back for doing A?

Let A be work full-time, and B be work part time. I pay a lot more taxes if I work full time. Working part time (or retiring earlier, or working at a lower paying but more pleasant job, etc.) are all perfectly legal and blameless methods of avoiding taxes.

If I'm just looking at my self-interest, I compare my drop in *net* income (net of taxes) with my benefits of extra free-time. I ignore the externality I impose on others through paying less tax if I work part-time. So, I have an incentive to work less and earn less income and pay less taxes than is optimal.

I don't understand why people are having a hard time seeing this point. Where is there a simple ECON1000 treatment of distorting taxes, net welfare cost triangles in a demand and supply diagram? Altruistic people would choose activities like earning more income and paying more taxes than would purely selfish people. Altruistic people would do more of (nearly) all activities that are taxed and less of activities that are untaxed (like leisure) than would selfish people. (I added the word "nearly" to cover exceptions like perfectly inelastic supply or demand curves, or where the activity that has some other negative externality and Pigou taxes are set at a suboptimal level for some reason.)

"However, thanking/praising people for complying with the law seem a bit strange."

I guess part of the point is that people can comply with the law in a way that causes them to pay high taxes, or they can comply with the law in a way that causes them to pay low taxes (either by structuring their affairs differently, or changing their behaviour, say working or investing more). If medals, or public honours, can cause people to comply with the law in the high tax manner, hey, that's a cheap way of doing it. And, as Nick points out, it might a be a way of offsetting the non-taxation of leisure.

I assumed that Frances, being a contemporary human being, was using the word "tithe" in the contemporary sense. I concede that according to other time-and-place-dependent definitions of the word, my comment does not apply. Most people in this day and age, though, use "tithe" to indicate a voluntary contribution to their preferred religious organization on the order of about 10% of their incomes.

By any other definition of the terms involved, nothing I said should be considered on topic. Of course.

I agree with you, but Frances used examples from earlier time periods where Tithe had a different meaning and was in substance an income tax collected under the authority of the state. Had she not mentioned these examples, I wouldn't have brought up the historical change in meaning.

By way of modern example, the United Church of Canada recommends 3% of income as a giving target for most people. Church House in Toronto, our national HQ, had a programme called Pre-Authorized Remittance, an automatic deduction from your bank account every month. Church Treasurers love it. Most people don't come every single week for the usual reasons, and this takes care of the problem. You get a card to put in the plate to show you're a PAR giver. The United Church even acts as as the PAR agent for Presbyterian, Anglican and Lutheran congregations, whose national HQ's don't have a similar service. I have Anglican friends who think the United Church's PAR programme is a gift from Heaven for them.

"Historically, the Templars are the only example I can think of where there religious institutions had the capacity to use force without also being in control of the government."

There were much more:

http://en.wikipedia.org/wiki/Military_order#List_of_military_orders

However, some could be considered governments (like the Theutonic Order).

We also had to remeber that, in Middle Ages, the tithe was mandatory and, at least in theory, the Pope was authority do depose kings and emperors, meaning that, in some sense, the Catholic Church could be considered the "government" (and national kings simply a kind of provincial governors)

If you are still looking for "others" see Jonathan Gruber, Public Finance and Public Policy. The introduction to Chapter 12, "Social Insurance: The New Function of Government" (3rd Edition, 2011) also makes this point (and cites Krugman, 2001).